Apex Human Capital Index Report- IT industry
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APEX-Human capital index is an analytical tool which analyses the value of human capital and its related aspects based on human capital and financial parameters. Human capital parameters constitute ...

APEX-Human capital index is an analytical tool which analyses the value of human capital and its related aspects based on human capital and financial parameters. Human capital parameters constitute for 2/3rd part of the index while the remaining 1/3rd Weightage is determined by financial parameters. Each parameter is measured on a scale. The range of scale is determined by the criticalness of the ratio to the index. A total of 300 points is the Weightage of the index, (200 from Human Capital and 100 from financial parameters) and the components are clubbed into 7 key parameters. Organizational performance is measured on 300 points and the output points are converted in to rating which ranges from AAA to D, wherein AAA is the highest rating and D is the lowest rating. The APEX-HC Index’s 7 key parameters measurement is based on the composite score of each key parameter and finally a response is assigned to it. The assigned response is the representation of numerical percentage figure to simplify the ranking. Ranks range from “Very Good” to “Very Low”, where Very Good is the top end and Very Low is bottom end rank. In order to carry out the valuation of individual organization, the index needs at least two consecutive years’ human capital and financial data. Each year’s rating and key parameters’ ranking is evaluated and compared to come to the conclusions as in which year performance is better, which part of business need fresh investment and where the organization needs to improve etc., are some of the parameters that are considered.

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Apex Human Capital Index Report- IT industry Document Transcript

  • 1. APEX-The Aventus Partners Human Capital Index Industry Report Industry – Information technology Aventus Partners, 2012
  • 2. APEX-Human Capital Index Industry Report Table of Contents Preface ........................................................................................................................................ 3 APEX-The Aventus Partners Human Capital Index ......................................................................... 4 Introduction.......................................................................................................................................... 4 Concept ............................................................................................................................................... 4 Industry ....................................................................................................................................... 5 Overview ............................................................................................................................................. 5 Current Scenario ................................................................................................................................. 5 Key Highlights during FY2012 ............................................................................................................ 5 Human Capital Measures ............................................................................................................. 6 Revenue Per employee…..……………………………..……………………………………….......6 Profit Per Employee….………………………………………………………………………………..7 Human Capital Return on Investment……………………………………………………………….8 Human Capital Turnover……………..……………………………………………………………….9 Human Capital Value Added………………………………………………………………………..10 Top 5 Companies ....................................................................................................................... 11 Aventus Partners ....................................................................................................................... 14 About Aventus Partners .................................................................................................................... 14 Services............................................................................................................................................. 14 Reach us .................................................................................................................................... 16 Offices ....................................................................................................................................... 16Page | 2 Aventus Partners, 2012
  • 3. APEX-Human Capital Index Industry Report Preface APEX-Human capital index is an analytical tool which analyses the value of human capital and its related aspects based on human capital and financial parameters. Human capital parameters constitute for 2/3rd part of the index while the remaining 1/3rd Weightage is determined by financial parameters. Each parameter is measured on a scale. The range of scale is determined by the criticalness of the ratio to the index. A total of 300 points is the Weightage of the index, (200 from Human Capital and 100 from financial parameters) and the components are clubbed into 7 key parameters. Organizational performance is measured on 300 points and the output points are converted in to rating which ranges from AAA to D, wherein AAA is the highest rating and D is the lowest rating. The APEX-HC Index’s 7 key parameters measurement is based on the composite score of each key parameter and finally a response is assigned to it. The assigned response is the representation of numerical percentage figure to simplify the ranking. Ranks range from “Very Good” to “Very Low”, where Very Good is the top end and Very Low is bottom end rank. In order to carry out the valuation of individual organization, the index needs at least two consecutive years’ human capital and financial data. Each year’s rating and key parameters’ ranking is evaluated and compared to come to the conclusions as in which year performance is better, which part of business need fresh investment and where the organization needs to improve etc., are some of the parameters that are considered. APEX-HC index helps organizations –  to compare performance of itself and its competitors  to find the areas of best performance, average performance and areas where they need improvement based on the APEX-HC’s analytics  to analyze the productivity, profitability and value addition by human capital pool in a specific financial year  market price valuation of the organization  to analyze Human capital utilization  to measure the effect of human capital utilization on market price of stock  making decisions related to manpower requirement from top to bottom  making decisions related to investment in human capitalPage | 3 Aventus Partners, 2012
  • 4. APEX-Human Capital Index Industry Report APEX-The Aventus Partners Human Capital Index Introduction APEX-The Aventus Partners Human Capital Index is an analytical tool that measures the value of human capital or talent pool in order to help service sector organizations analyze their talent capabilities and various other critical and at times hidden aspects of human capital. The tool can be useful to the following groups of professionals:  Business Leaders in the services domain to understand the performance of their Human Capital from the business indicators  HR Professionals to understand which areas of the Human Resources function need to be augmented/redesigned/better utilized  Banks and Financial Institutions, so as to understand how Human Capital contributes to the financial performance of Services organizations and thereby arrive at some lending mechanisms to these sectors  Private Equity players, to arrive at an optimum price discovery mechanism on their investment strategies in the services domain  High Net Worth and Retail investors, to discover a new asset class with potential for performance and discover new strategies of investment Concept APEX-The Aventus Partners Human Capital Index consists of a set of human capital ratios and financial ratios. Human Capital ratios derived from the Balance Sheet, Profit and Loss Account and the audited and published Annual Report consist for 2/3rd part of the index weightages while financial ratios make 1/3rd part of the total index. Data for ratio calculation are taken from annual reports (Balance sheet, Profit and loss account, Cash flow statement and their schedules) of companies in service sector. Each ratio is calculated in percentage value and measured on a scale. The range of a scale is based on the importance of ratio to index, which is why rating points on the scale varies from ratio to ratio. Range of a scale varies from negative points to positive points being assigned, for instance if the scale is 9 for a ratio then the ratio will be measured on the scale from -9 to +9 points based on the value of the ratio. If the value of a ratio is negative, the rating will be measured on negative side and if ratio value is positive, rating will be on positive. The sum of all the ratios scale is 300 points. APEX-Human Capital Index is measured for 300 scale points in rating pattern from AAA to D where AAA is the highest rating while D is the lowest rating. There are 7 key parameters that collectively make the index namely - Work environment, Organization pyramid dimensions, Skill induction and development, Remuneration, Retention, Human Capital contribution to business and financial performance. These 7 key parameters are measured on weighted rating system which varies from “Very Good” to “Very Low” based on the score of each parameter. These 7 key parameters and the final index ranking make the output part of the index. To measure an organizations’ human capital value, we require at least two years’ sequential data of a particular organization. To compare an organization with other of same industry we need the same year’s data for both.Page | 4 Aventus Partners, 2012
  • 5. APEX-Human Capital Index Industry Report Industry Overview The Indian IT industry has witnessed a strong recovery over last few quarters after facing a bleak outlook following the onset of global economic slowdown in the last quarter of 2008. The industry faced a difficult year but started moving towards recovery by second half of the FY10 and operating atmosphere for the industry has continuously improved since then. The recovery which started with pent up demand and cost cutting initiatives by large MNCs is now progressing as major companies across the world started hiking IT budgets gradually. However, there are some headwinds for the industry. Glitches in the global recovery continue to remain even as demand for IT services has been increasing. A bigger threat for the industry has been coming from home turf where the industry is facing surge in costs. There is a lot of upward pressure on wages amidst a rapidly recovering Indian economy and high inflation. Rupee volatility has been another problem that IT industry is facing, though we believe companies, in particular the large one, have learned to counter this challenge to some extent. However, any sharp increase in rupee form current levels coupled with wage inflation can impact margins. Current Scenario After recording nearly a decade of strong growth the, Indian IT industry posted the lowest growth it has seen in the post-deregulated era in the fiscal year 2009-10. According to the estimates prepared by the industry body NASSCOM, the sector had grown by around 6% in FY10. However, even though the growth was much slower compared with historical performance, the industry has certainly put the worst behind it. The recovery has become much more visible and broad-based in FY11 with growth increasing significantly. The Indian IT industry today stands at an inflection point in its evolution. It is one of the biggest contributors to the Indian GDP in the last decade. The industry, which was almost at nascent stage till late 1980s, grew at tremendous pace after early 1990s and exports have grown by 100 times over the last 15 years. Key Highlights during FY2012  IT services exports is the fastest growing segment, growing by 19 per cent in FY2012, to account for exports of USD 40 billion  Considerable traction in traditional segments – custom application development, application management, IS outsourcing and software testing  Industry re-tooling itself to adjust to rapid change in customer priorities – from SLAs to increased time-to-market  Emerging technologies – cloud computing, mobility, social media and big data/analytics unleashing new opportunities for the industry  IT services is the fastest growing segment in the Indian domestic market, growing by 18 per cent to reach Rs 589 billion, driven by increasing focus by service providersPage | 5 Aventus Partners, 2012
  • 6. APEX-Human Capital Index Industry Report Human Capital Measures 1. Revenue Per Employee (RPE) – RPE is a productivity ratio which measures individual’s contribution to the total revenue. Significance of this measure is to get an insight of the overall performance of human capital pool based on the revenue generated in a financial year. Higher value of this measure indicates better productive human capital pool. Figure 1 - Revenue per employee Revenue per employee is a critical measure for any company in order to measure the employee productivity. Relatively high revenue per employee is a positive sign that suggests the company is finding ways to squeeze more sales (revenue) out of each of its employees. Effectiveness of human resource policies and practices, workforce quality and age of the company affects revenue per employee figure. From the above chart one can infer that Infosys’ human capital pool is more productive than others. HCL is only company with continuous Y-o-Y growth during last 6 years which recorded a growth of more than 55% in revenue per employee figure compared to year 2006 revenue.Page | 6 Aventus Partners, 2012
  • 7. APEX-Human Capital Index Industry Report 2. Profit Per Employee – This is a profitability ratio which measures individual’s contribution to the profit. Significance of this ratio is to measure the overall performance of human capital pool based on the profit earned in a financial year. Higher value of this ratio indicates more profitable human capital pool. Figure 2 - Profit per Employee Profit per employee is a profitability ratio measure which measures contribution to the total profit by each employee. Relatively higher value is a positive sign of management’s capability to manage human capital effectively and controlling cost in efficient manner. From the above profit per employee line graph it is clear that Infosys’ human capital pool is more efficient than others. Value of the ratio is almost constant over the years for each company.Page | 7 Aventus Partners, 2012
  • 8. APEX-Human Capital Index Industry Report 3. Human Capital Return on Investment – This measures the return on investment made on human capital as salary, incentive, bonus, land, building and other related costs. Human capital return on investment is the key mark in service sector to measure the value of any organization because of very less amount of fixed assets son balance sheet. Figure 3 - Human Capital Return on Investment It directly shows the amount of profit earned for every rupee invested in human capital – in effect the leverage on human capital cost. Tata consultancy services and Infosys are high on human capital return. During the last 6 years period Infosys is maintaining human capital return on investment ratio value over and above 0.5, whereas TCS maintained it above 0.4. This value can be interpreted as if one had invested one rupee on human capital he would have earned 50 paisa and 40 paisa respectively as profit on it.Page | 8 Aventus Partners, 2012
  • 9. APEX-Human Capital Index Industry Report 4. Human Capital Turnover - this ratio measures efficiency of human capital in terms of generating sales or revenue as turnover on investment made on human capital in the form of salary, incentive, bonus, land, building and other related costs. Figure 4 - Human Capital Turnover It directly shows the amount of revenue generated for every rupee invested in human capital. Tata Consultancy Services and HCL are high on human capital turnover. Major change can be seen on TCS as a sharp drop from year 2006 to 2007. As far as Infosys is concerned, it is looking under pressure because of relatively high human capital cost which affected turnover ratio. From this ratio we can conclude that higher the human capital cost, lower the human capital turnover ratio.Page | 9 Aventus Partners, 2012
  • 10. APEX-Human Capital Index Industry Report 5. Human Capital Value Added – this ratio measures the value which has been added to the organization by each employee or in other words it is the measurement of effectiveness of employees. The value addition is measured in monetary terms as profit earned by the company on account of each employee. This ratio is helpful in analyzing the effect of net employee addition on earnings by comparing previous periods profit data. Here EBIT figure is used to calculate the ratio. Figure 5 - Human capital value addition Value addition playes an critical role in decision making for an organization when manpower requiremnt and hiring related decisions has to be taken. Effect of net employee addition on earnings of an organzation can easily be measured by comparing ratio values of previous period to current period. Infosys and HCL are following same pattern but growth percentage is high in HCL while infosys is at the top in this ratio category. From the above chart we can infer that employees of infosys are adding more value than other.Page | 10 Aventus Partners, 2012
  • 11. APEX-Human Capital Index Industry Report Top 5 Companies 1. Infosys 2. Tata Consultancy Services 3. HCL Technologies 4. NIIT Technologies 5. Sasken Communication Technologies Infosys 2006 2007 2008 2009 2010 2011 Market Price 2981.40 2307.48 1700.17 1436.78 2262.20 3241.30 Rating Point 210.1 212.4 215.2 216.2 207.6 183 Infosys is a well-known brand in Indian IT industry so is its stock in Indian stock market. It is at the pole position in APEX-Human Capital Index of IT industry on the basis of rating points. To carry out the human capital valuation of Infosys based on its most prominent assets “Employees” we have factored in the last 6 years data. The graph of Infosys Technologies’ is plotted depicting the market price and rating points. Rating points are taken from Apex-Human Capital Index which shows the overall performance of Infosys with respect to human capital and financial investments. High value of rating points means higher utilization of its core asset; Human Capital, effective human resource polices & processes, controlled cost and capable management. The effect of higher utilization of its intangible assets can be seen on its market price as the value of intangible assets increases market price goes up and vice-versa. The gap between market price line and rating point line can be interpreted as the reflection of intangible value of human capital as perceived by the stock market. What one can perceive it that there has been no significant improvement in Human Capital investments and output over the years, and the markets tend to be favouring the brand rather than the underlying performance.Page | 11 Aventus Partners, 2012
  • 12. APEX-Human Capital Index Industry Report Tata Consultancy Services 2006 2007 2008 2009 2010 2011 Market Price 1915.50 1438.35 998.82 676.63 749.44 1183.90 Rating Points 191.1 166.9 171.4 166.7 181.2 170.6 The effect of Human capital practices and value of investments in human capital can be seen through market price trends. As the market price line comes down intangible assets (human capital) values decrease and when it goes up intangible assets value increases. A market price line (in blue) above human capital rating line (in red) shows the quality of investment. In year 2009 value of human capital and its other aspect is lowest in last 6 years, its mainly because of relatively lower growth in revenue. HCL Technologies 2006 2007 2008 2009 2010 2011 Market Price 502.11 391.44 292.92 217.87 320.80 493.46 Rating Point 200.3 194 178.5 181.9 182.6 161.3 HCL’s market price follows trends similar to Infosys and TCS. From year 2006 to 2009 market price dropped and started increasing subsequently. Markets tend to take a dull view if the economic situation is adverse. In such a time, the measure of the Human Capital is the best way to gauge the stability of Human Capital and an organization’s continued investment in it, even in adverse market circumstances. In the year 2009 market price is lowest in 6 years hence human capital value is lowest in this year.Page | 12 Aventus Partners, 2012
  • 13. APEX-Human Capital Index Industry Report NIIT Technologies 2006 2007 2008 2009 2010 2011 Market Price 228.55 376.01 184.13 92.20 146.48 184.50 Rating Point 171.8 184.8 181.5 177.8 184.2 184.9 NIIT technologies’ line graph is showing that both the lines are almost straight and overlapping. This is the case where companies should start thinking about their employees and start making good investment in human capital, better services mixes and push for more profitable opportunities. There are several reasons which are responsible for very low human capital value namely less productive and profitable human capital, less effective human resource policies and less efficient management etc. Sasken Communication Technologies 2006 2007 2008 2009 2010 2011 Market Price 342.75 445.69 205.18 102.22 150.82 157.50 Rating Point 174.8 179.8 171.6 154 188.5 199.2 In this case, the organization should strongly focus on their human capital and start making good investment in human capital. There are several reasons which are responsible for very low human capital value namely less productive and profitable human capital pool, less effective human resource policies and less efficient management etc. Each needs to be carefully evaluated, the product mix should be analyzed closely and the services that the organization bids for should be scaled up in terms of value, since there doesn’t seem to be significant depletion in Human Capital, what comes across is that the organization is pitching for a lower order or projects with reduced profitability and recovery.Page | 13 Aventus Partners, 2012
  • 14. APEX-Human Capital Index Industry Report Aventus Partners About Aventus Partners They say your beliefs dictate your deeds. We believe that to meet the unique talent needs of any business one has to venture out of the box. We decided to put our beliefs to practice, and resultantly, in 2007 Aventus Partners was born. We bring to the table over thirty years of experience in Talent Acquisition, Talent Assessment, Talent Development and an in-depth knowledge of businesses across industry spectra. At Aventus Partners the real edge that we put at our clients disposal is our belief in a culture of out of the box thinking. Services The true competitive differentiator for any organization is its human capital. At Aventus Partners, we believe in looking beyond the obvious to find innovative solutions for your organization’s talent needs. Our skilled team understands your organization’s unique value proposition and business goals to offer you customized solutions for attracting, nurturing and retaining business leaders who will take your organization to the next level. We offer bespoke solutions in following areas:  Leadership Talent Acquisition  Talent Assessment and Development  Talent Management Leadership Talent Acquisition As every organization evolves, it discovers its unique value proposition, and learns to enjoy playing to the skills advantages it possesses. We at Aventus Partners understand our core skill and areas where we have enthusiastically contributed to building large business capabilities for our clients and deep Knowledge Practices for ourselves. Our Knowledge Practices in Leadership Talent Acquisition: I. Private Equity Practice II. Emerging Businesses Practice III. CXO Practice IV. Emerging Technologies Practice V. Consulting Practice I. Private Equity Practice Aventus Partners has worked with PE funds for identifying Principals in the Investment Management, deal sourcing and operations side, as well as in identifying critical senior management talent for investee companies. We understand the challenges of managing complexities of business while scaling them up to reach a predefined escape velocity at the time of strategic exit. The talent identified by us has worked successfully with the Private Equity funds and there investee companies in managing business cycle from investment to exit. II. Emerging Businesses PracticePage | 14 Aventus Partners, 2012
  • 15. APEX-Human Capital Index Industry Report Aventus Partners has proven credential and deep expertise in working with emerging businesses. The team at Aventus Partners has been engaged with developing organizations over the last 15 years and understands the changing skill requirements at different stages of organizations’ evolution. The challenge in working with emerging business is that it has less precedence. The same challenge extends to the availability of skill or talent for them. What emerging businesses need most is out of the box thinking and solutions to provide them with access to talent and services that are within reach and in line with global performance frameworks. At Aventus Partners we believe that the size of the business should not restrict the quality of talent pool available to the organization. III. CXO Practice All organizations irrespective of size realize the importance of critical leadership pipeline and the capabilities that they bring in to make their businesses successful. There is a tremendous opportunity to induct leadership talent at the CXO levels for each organization. Aventus Partners’ CXO practice is geared to service the needs of organizations seeking to prepare themselves for the next stage of growth. IV. Emerging Technologies Practice Aventus Partners has worked with organisations across the spectrum, ranging from wind power, solar power, mobile technologies, oil & gas, geothermal energy, storage media, mining and minerals, semiconductors to supercritical thermal energy generators over the years. Aventus Partners has successful track record in identifying and bringing on board niche talent for client organizations. V. Consulting Practice Aventus Partners has engaged with tier 1 management and strategy consulting firms, private equity firms and MNC boutique consulting firms to help them identify talent at the level of Partners and Principals. The individual and collective experience gained during our professional careers with Big Four Consulting organization gives us an edge and higher appreciation of Consulting as an industry and its skill requirements. We have deep understanding of consulting domains, industry verticals and functional expertise. We also understand thoroughly the competencies required to excel in the Consulting environment. Talent Management As professionals in the talent management domain we have been using our collective and individual capabilities to enable our clients meet their unique talent challenges, challenges for which there have been no real precedent to look for within their organisation or outside in their specific industry. We partner with our clients in addressing these challenges putting in our deep expertise and experience. We are glad to partner organizations of any emerging businesses and provide them with the necessary expertise to enable them meet their needs. We help ideate solutions, sell it to key stake holders and also partner in execution as per the demands of the context.Page | 15 Aventus Partners, 2012
  • 16. APEX-Human Capital Index Industry Report Reach us M P Sriram, Partner Tania Gooptu, Partner Venkat Iyer, Partner sriram@aventus.in tania.gooptu@aventus.in venkat.iyer@aventus.in +919895345133 +919810215872 +919810608607 Offices Aventus Human Capital LLP Aventus Human Capital LLP Aventus Human Capital LLP 40/48, Ground Floor, Pocket 919, 2nd Stage, Varthur Main Personal Chamber, Natham’s 40 EPDP Road, CR Park, New Road, Tubrahalli, Bangalore- 560 House, Chittoor Road, Cochin- Delhi-110019 Phone +91 11 066 Phone +91 80 3253 7215, 682035 Phone: +91 484 40561242-45 Fax +91 11 +91 80 2854 3089 3248780 40561241 www.aventus.inPage | 16 Aventus Partners, 2012
  • 17. APEX-Human Capital Index Industry Report Aventus Human Capital Solutions Pvt. Ltd. 40/48, Ground Floor, Pocket 40, EPDP Road, CR Park, New Delhi-110019 Phone +91 11 40561242-45 Fax +91 11 40561241 www.aventus.inAll information contained in this document is sourced from our clients or other public sources. It may include opinions of AventusPartners and its clients as well. While every effort is made to achieve accuracy in the information contained in this documentAventus Partners is not legally responsible for any content of this document or any consequent actions. We advise that all personsreading this document make their own judgments’ and seek any information desired by them from their own sources.© 2012, Aventus Partners Delhi I Bangalore I KochiPage | 17 Aventus Partners, 2012